This article first appeared in City & Country, The Edge Malaysia Weekly on September 19, 2022 - September 25, 2022

The Johor Baru property market is showing signs of improvement following the start of the country’s transition to the endemic phase on April 1 and the reopening of borders, according to KGV International Property Consultants (Johor) Sdn Bhd executive director Samuel Tan when presenting The Edge | KGV International Property Consultants Johor Baru Housing Property Monitor 2Q2022. “Following the reopening of borders, Malaysians trapped overseas, in particular, those in Singapore, could finally come home, and Singaporeans could resume their favourite day tours and weekend trips to Johor Baru.”

Tan says, “As a result of the increased footfall and higher spending power from down south, trades like retail, F&B, hospitality, and personal wellness services such as massage, beauty care, hair salon and so on, are the immediate beneficiaries.”

He acknowledges that there are challenges. “Nevertheless, it takes time for the businesses to fully recover. From our observation, a lot of businesses are still saddled with a few teething problems such as lack of staff, needing lead time to restart/reopen outlets after the lockdown and having confidence to plough in additional capital to restart the business.

“Some hotels and F&B outlets could not cope with the influx of demand, especially during the initial weeks in April. This is nevertheless a happy problem that should be resolved soon. We are optimistic that the economy is on a recovery trajectory despite the challenges along the way.”

With the encouraging signs of business recovery in the tourism-related sectors, the property market in Johor Baru is also witnessing more activity.

“The rental market was the first sector to see an improvement. Many Malaysians working in Singapore returned to Johor Baru and started renting apartments near the Causeway and the Second Link. The surge in demand for rental accommodation is mainly driven by the escalating rents in Singapore these past two years,” Tan observes. “We noticed that asking rents have been creeping up, especially in locations with easy access to the two gateways to Singapore.”

There is also higher demand for high-rise apartments. “We also gather from anecdotal evidence that demand for high-rise apartments has also improved.

“The high-rise apartments in good locations, such as the Johor Baru city centre and Iskandar Puteri area, saw renewed interest and improved sales last quarter,” says Tan. “For instance, a serviced apartment [project] in Taman Century reportedly received about 250 bookings after the borders reopened.”

Tan highlights some of the prominent catalysts in Johor Baru. “The Johor Baru-Singapore Rapid Transit System (RTS) is slated to start operating in 2026/2027. The Gemas-Johor Baru Electrified Double Track project is due to be completed this year.

The mega integrated commercial, hospitality and residential development, Coronation Square @ Ibrahim International Business District (IIBD), will drive the revitalisation of the city centre.

“Other catalysts include the data centre development in Sedenak Industrial Park and industrial and logistics developments in Senai Airport City. These transport, commercial and industrial projects will create jobs, enhance connectivity and bring about spin-off to other economic sectors,” says Tan.

He lists some of the upcoming areas in Johor Baru. “Gerbang Nusajaya is an integrated township in Gelang Patah near the Second Link. When completed, it will have residential, commercial, leisure and industrial components that complement Iskandar Puteri, Medini, Puteri Harbour and East Ledang nearby.”

Situated in the city centre, Coronation Square comprises offices, residential, retail, hotel and medical components. Once completed and fully occupied, it will add vibrancy to the city centre.

“Senai Airport City is the latest industrial hub that is attracting MNCs. It complements the Senai Industrial Estates and Senai Airport nearby that are already mature and provide employment opportunities to the locals.”

The Sedenak Industrial Park is also attracting a pipeline of data centres. “It is poised to be a data centre hub, and this could provide the impetus to kickstart the industrial development at Kulai’s northern corridor,” notes Tan.

During the review period, there were several market determinants, including the accelerating interest rate.

“To tame the threat of inflation, the US government started its aggressive rate hike this year. It has revised the interest rate three times from 0.5% to 1.75% to 2.0% as at 1H2022,” notes Tan. “The US interest is poised to rise further and is targeted to reach 3.4% by end-2022 and 3.8% by 2023.”

He adds, “Bank Negara Malaysia is likely to follow suit though it may not be in lockstep with the US Federal Reserve in terms of quantum of interest hike and frequency. Cost of funds will increase following the rise in interest rate. Financing costs will increase. The property sector will be negatively impacted as monthly instalments will increase.”

On Sept 8, Bank Negara raised the overnight policy rate by 25 basis points to 2.5%.

Many prospective buyers will probably adopt a wait-and-see stance before plunging in, observes Tan. “First-time homebuyers and upgraders who have been monitoring the market will be looking at affordable properties such as terraced houses and apartments. Many will opt for fixed interest rates, or a hybrid of fixed and variable interest, in their loan financing to mitigate the uncertainty and fluctuation of interest rates.”

There is also a higher risk premium, says Tan. “If we do a stocktake on the ‘black swan events’ over the past few years, some of the prominent ones are the Covid-19 pandemic, US-China stand-off and prolonged trade war due to the Russia-Ukraine conflict.

“Consequential effects arising as a result of these major black swan events are supply chain distribution, currency devaluation, high inflationary cost and increasing protectionism stances adopted by governments worldwide,” he asserts.

“It appears that we are indeed in a perfect storm. The externalities increased the risk of recession, and possibly an economic stagflation. This contributed to the rise in higher risk premiums.”

Nonetheless, Tan warns, “What makes matters worse for Malaysia is the political risk that no dominant party is seen to be able to command a majority in absolute confidence in the forthcoming GE15 (15th General Election). These uncertainties may weigh against the property market.

“Having said that, the silver linings for Johor Baru’s property market are our pro-business state government, and our proximity to Singapore,” says Tan.

“By capitalising on Malaysians working in Singapore and Singapore’s relatively strong economy, our economy and property market will be supported by strong demand from these groups of potential buyers,” he adds.

Meanwhile, Tan also highlights the stamp duty waiver for first-time homebuyers. “First-time homebuyers of properties costing up to RM500,000 will not have to pay stamp duty on purchases made via the Keluarga Malaysia Home Ownership Initiative (i-Miliki) from June 1, 2022 to Dec 31, 2023. Those buying homes at RM500,000 to RM1 million will enjoy a 50% discount on stamp duty.

“While this measure helps first-time homebuyers, it is not applicable to all buyers, unlike the stamp duty waiver under the Home Ownership Campaign (HOC). We do not expect this measure to boost demand much,” he says.

“There are other more pressing issues like increasing financing cost and other macroeconomic risks the buyers would place more weightage on in considering buying properties.”

According to the monitor, there were no new launches in 2Q2022, as most developers were concentrating on clearing their stock. Nonetheless, price and rental trends appeared stable in the period under review.

“Transaction prices of the projects under review either remained stable or increased from 2.2% to 9.1%,” says Tan.

“However, we noted that prices of some serviced apartments/condominiums such as Sky Executive at Bukit Indah, Ujana at Ledang Height and Molek Pine (Tower 2) at Taman Molek increased from 3.8% to 6.3%.

“Rental was relatively stable with some projects registering positive growth in 2Q2022. This could be attributed to the improved sentiment as a result of the border reopening. More Malaysian workers have opted to rent accommodation in Johor Baru and commute daily,” says Tan.

In terms of yield, 2-storey terraced houses in Horizon Hill and 2-storey semi-detached houses in Sri Alam improved by about 10%. “The yield for most high-rise residences also increased as a result of improved rents.”

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